Kuwait: Construction activity set to rise

The construction industry is looking to a series of projects, combined with increasing demand from the private sector, to generate momentum following a period of minimal growth and thin margins.

In recent months, the government has announced several infrastructure developments and re-introduced others that had been delayed due either to fiscal constraints or parliamentary hurdles regarding allegations of poor tender practice.

At the end of January, for example, the Kuwait Oil Company awarded a $486.5m contract to Turkey-based contractor STFA to construct a port next to the Mina Al Ahmadi refinery, upgrade the existing harbour nearby and build other smaller harbours along the coast. The project is part of a larger development to increase shipping capacity for the refinery, which will be expanded to handle a capacity of around 4m barrels of oil per day by 2020.

Other projects in the pipeline include the $6bn expansion of Kuwait International Airport, which will increase its annual passenger-handling capacity to 20m; up to $14.2bn worth of road work to be completed over the next five years; and infrastructure to underpin a commercial seaport on the previously uninhabited Boubyan Island.

National Bank of Kuwait (NBK) has forecast that the economy will expand by 3.1% in 2013, down from the 6.1% of 2012, though the non-oil sector will post growth of 5%, up from 4%. According to NBK, this increase will largely be on the back of “a greater determination by Kuwaiti authorities to implement large infrastructure projects”.

The predicted rise in the sector’s fortunes will be welcomed by industry players, as a study conducted in 2012 showed annual average growth of just 1% for the five years to 2011. However, the report, prepared by market research firm Timetric, predicted year-on-year expansion of 7.5% through to 2016, with the greatest focus being on state-backed infrastructure. While there has been further growth in 2012, postponed projects and sluggish demand held back activity, with delays in state developments in particular limiting expansion.

According to Sulaiman Al Maarouf, CEO of the Combined Group Contracting Company, it is becoming increasingly important for the major infrastructure developments to get off the drawing board. “Implementing and executing mega-projects in Kuwait is now vital,” he told OBG. “Local and international companies have been waiting for too long. The government has announced plans to launch these mega-projects and still they are waiting.”

While Al Maarouf concedes there can be unexpected delays to construction projects in Kuwait, plans to improve laws governing public tenders that will increase accountability and reinforce standards should benefit the sector and ease constraints.

However, it does appear that at least some of the large-scale projects will be delayed. On February 6, the parliament overrode government objections and voted to establish a committee to review the contracts for two developments following claims of abuse of the tendering process. The review, covering the contracts for the Al Zour North power plant and the Sheikh Jaber Bridge, is due to be completed in the next three months.

Abdulaziz Al Ibrahim, the minister of electricity, water and public works, contested the allegations of abuse, stating that tenders for the Al Zour North power plant and Jaber Bridge projects were carried out in line with all legal requirements. Al Ibrahim added that an investigation into the fully approved developments would cause delays and could undermine the confidence of foreign companies.

Any postponement would pose problems for the economy, the minister told the parliament, adding that a delay in the development of the Al Zour power station would be particularly problematic. “By next year, we will have zero reserve capacity without the project and we will be forced to adopt programmed cuts,” Al Ibrahim warned.

Even if there are delays in some of the big-ticket government projects, there are signs the construction industry could get a boost from the private sector, as demand in the residential, investment and commercial segments appears to be on the rise. A report by NBK issued in early February showed property sales increased by 16% in 2012. “If this trend continues, alongside a more active government real estate fund, we could see a notable pick-up in sales in 2013,” the report said.